On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1909-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 13, 2010

Before Judges Wefing, Baxter and Koblitz.

Plaintiff appeals from a trial court order granting summary judgment to defendant Cleary. After reviewing the record in light of the contentions advanced on appeal, we reverse that order and remand this matter to the trial court for further proceedings.

The matter has a complex factual background that must be set forth in order to understand the procedural steps that led to this appeal.

In 1994, plaintiff's predecessor, Beacon Road Associates, L.L.C. ("Beacon Road"), submitted an application to the Marlboro Township Planning Board to develop a parcel of land it owned in the Township's R-80 residential zone. The minimum lot size in that zone is 80,000 square feet, with a minimum street frontage of 250 feet. Beacon Road's property was identified as Lots 10 and 20, both of which fronted on Beacon Hill Road. It proposed to construct a street, Haven Way, running between Lots 10 and 20, from Beacon Hill Road and ending in a cul-de-sac. It further proposed to subdivide Lots 10 and 20 into separate building lots. This litigation involves the proposed subdivision of Lot 20, specifically subdivided lots 20.08 and 20.09.

Lot 20.08 was a five-acre parcel, clearly satisfying the minimum lot size of 80,000 square feet. Beacon Road needed a variance for this lot, however, because the plans as drawn gave it only a fifty-foot frontage on Haven Way. Absent that long, narrow driveway, Lot 20.08 would be a landlocked parcel. Such a configuration is referred to as a "flag lot" and we shall, in the balance of this opinion, refer to Lot 20.08 as the Flag Lot. The following diagram depicts the approved plan.

The Planning Board was concerned that Beacon Road might return in the future and seek to further subdivide the Flag Lot, an eventuality that was possible under Marlboro's zoning ordinance. Beacon Road assured the Board that it had no intention to seek a further subdivision in the future, and it agreed to include a deed restriction preventing such an occurrence. In June 1995, the Planning Board approved Beacon Road's application, subject to the condition that this Flag Lot "contain a deed restriction . . . restricting future subdivision based upon the variances granted for this lot."

Before proceeding with its proposed development, Beacon Road returned to the Planning Board in 1997 seeking approval of a revised plan to take advantage of the option of cluster zoning that was available under the Township's ordinances. The revised plan provided for smaller lot sizes but more open spaces. These revised plans, however, made no change with respect to the Flag Lot; it retained its flag configuration. In connection with this 1997 application, Beacon Road assured the Board that it would still agree to a deed restriction for this lot preventing any future subdivision of it. In June 1997, the Planning Board approved this revised cluster application, again conditioned upon a deed restriction for the Flag Lot "restricting future subdivision based upon the variances previously granted for this lot." Beacon Road, however, neglected to record such a deed restriction.

In August 1997, two months after the Board approved the revised plans, Beacon Road sold its interest in this project to plaintiff American Dream at Marlboro, L.L.C. ("American Dream"). American Dream had actual knowledge of the Board's resolutions and that approval of the proposed development had been contingent upon a deed restriction for the Flag Lot. In September, plaintiff entered into a Developer's Agreement with the Township to build homes on the approved subdivision. In that agreement, plaintiff expressly agreed to develop the Flag Lot in accordance with the earlier restriction. Paragraph 4 of the agreement states:

It is the express intention of the parties to incorporate into this Agreement all of the conditions and requirements set forth in all Resolutions of approval adopted to date by the Marlboro Township Planning Board concerning the subject property, as may be amended.

Further, paragraph 10 stated that plaintiff would comply with all conditions and requirements contained in the Planning Board's approvals.

Five months later, in February 1998, plaintiff entered into a contract to purchase Lot 27, a 10-acre parcel located immediately behind the Flag Lot. Access to Lot 27 was through an easement to Beacon Hill Road, cutting across three lots in Beacon Woods I. Plaintiff asserts that its contract to purchase this parcel of land was subject to obtaining the approval of the Planning Board to merge the Flag Lot into Lot 27 and thereafter divide that entire fifteen-acre parcel into six lots. In July 1998, plaintiff submitted an application to the Planning Board, seeking approval of its plan to merge and subdivide the Flag Lot and Lot 27 in order to create "Beacon Woods II." It proposed to construct a new road that would run from what had been a cul-desac at the end of Haven Way, to provide access to six new single-family lots. It did not include in that application any reference to the fact that the Flag Lot was subject to an unrecorded deed restriction prohibiting its subdivision. The Planning Board granted preliminary approval of this application in December 1999.

Having obtained this approval, plaintiff proceeded to close title on Lot 27. In addition, it vacated an access easement that had previously run through several of the Beacons Woods I lots. It did so because the December 1999 approval made this access easement unnecessary and its removal would enhance the marketability of the affected lots. The result of this vacation would be to make Lot 27 landlocked absent any access through the Flag Lot.

In the interim, defendant Cleary signed a contract to purchase Lot 20.09 in Beacon Woods I and have a house constructed on it. Lot 20.09 backed into the Flag Lot. Her deed contained no mention of any restriction on the future development of the Flag Lot, nor did any of the deeds for parcels sold in Beacon Woods I. She took possession of Lot 20.09 in January 2001, and in April 2001 the Planning Board granted final approval to Beacon Woods II.

In June 2002, before any work had been commenced on Beacon Woods II, plaintiff entered into a contract to sell the Beacon Woods II project to another developer, Signature Communities, L.L.C. During the due diligence period, prior to closing, plaintiff discovered that it had failed to retain a construction easement on Cleary's lot and an adjoining lot that would be necessary to build the proposed road that was part of Beacon Woods II. Negotiations to obtain her approval for this easement were unsuccessful, and plaintiff then redesigned the proposed road, narrowing it so as to obviate the need for such an easement. Although the Planning Board's traffic engineer approved this re-design, Cleary objected and requested that the Planning Board not approve it. In July 2003, plaintiff submitted a formal application to the Board for approval of this revised road design. Discussions between plaintiff and Cleary resumed and were again unsuccessful, and plaintiff's contract with Signature was terminated.

In March 2006, plaintiff approached the Board and asked it to proceed with the pending application. Cleary again objected.

Delays were encountered in scheduling a meeting to consider the matter, and the Board ultimately advised plaintiff that the prior approvals it had obtained for the Beacon Woods II project had expired due to the lapse in time. N.J.S.A. 40:55D-52. Plaintiff protested and contended that its application had been approved by default. N.J.S.A. 40:55D-10.4. The Board rejected this position by letter from its counsel in April 2007.

On April 25, 2007, plaintiff filed suit seeking default approval of its proposed development of Beacon Woods II. Defendant Cleary was granted leave to intervene, and she sought a declaratory judgment that the Flag Lot was restricted from future subdivision; in addition, she sought to compel plaintiff to execute and record a deed restriction for this lot. She moved for summary judgment, which the trial court granted, finding that the Flag Lot was deed-restricted against future subdivision pursuant to the Planning Board resolutions. The trial court further held that the 1999 and 2001 Planning Board resolutions that had approved Beacon Woods II were void because the Planning Board lacked jurisdiction to eliminate that deed restriction and approve the Beacon Woods II plan.

The trial court, however, gave plaintiff leave to file an amended complaint, which it did on June 16, 2008. In that amended complaint it contended that the proposed merger of the Flag Lot and Lot 27 would eliminate the stated reason for the deed restriction because there would be adequate access to and frontage on a public road. After all the other residents in Beacon Woods I were joined as necessary parties, defendant Cleary again moved for summary judgment, contending there were no changed circumstances that would warrant granting plaintiff this relief. She argued that maintaining the deed restriction was required to preserve the approved neighborhood lot layout for Beacon Woods I that the Planning Board had approved in 1997. The trial court granted this motion, concluding that plaintiff had failed to carry its burden of demonstrating that no benefit was served by the deed restriction and that the Planning Board had relied on the deed restriction when it approved the lot layout in 1997.

This appeal followed. We are satisfied, for the following reasons, that the trial court's analysis was incorrect.

Generally, a restrictive covenant will be enforced in equity only so long as it "remain[s] reasonable in light of [its] purpose." Citizens Voices Ass'n v. Collings Lakes Civic Ass'n, 396 N.J. Super. 432, 446 (App. Div. 2007) (citation omitted). Under the doctrine of changed conditions, "a court has a reservoir of equitable power to modify or terminate a [restrictive covenant] should changes occur in the future which would make it impossible as a practical matter to accomplish the purpose for which [it] was created." Ibid. (citing Restatement (Third) of Property: Servitudes § 7.10(1) (2000)).*fn1 However, courts apply the changed-conditions doctrine "with caution." Ibid. (quoting Restatement, supra, § 7.10 comment a).*fn2

We recently had occasion to consider the question of setting aside a deed's restrictive covenant in Citizens Voices, supra. There, we noted that "[t]he test is stringent; relief is granted only if the purpose of the [restrictive covenant] can no longer be accomplished." Ibid. (quoting Restatement, supra, § 7.10 comment a). In that case, property owners in Collings Lake took title through deeds which contained a restriction limiting to $48 per year the sum each owner could be charged to use the lake. The association managing the lake sought to increase that fee, and certain of the property owners resisted on the basis of the language in their deeds. We affirmed the trial court's conclusion that there existed at that time no basis to modify that covenant. We noted, however, that should the cost of maintaining the lake become prohibitively expensive in the future, or the residents become unable to use the lake, a court could either modify the covenant to increase it or terminate it, since the purpose of the fee-to maintain the lake for the residents' use--would no longer be possible.

The case of Leasehold Estates, Inc. v. Fulbro Holding Co., 47 N.J. Super. 534 (App. Div. 1957) illustrates this principle. In that case, a deed contained a restrictive covenant prohibiting the conveyance of any right-of-way in an alley "except for the purpose of being used for ingress and egress to and from a barn or stable to be erected on the rear of premises occupied by said person as his dwelling house." Id. at 557. We upheld the termination of this restrictive covenant, finding that its purpose, to benefit a person making residential use of the property, could no longer be achieved in light of the fact that the property was being used for commercial purposes. Id. at 559-65. We noted:

[A] restrictive covenant[] as to the use of land...is a contract, enforceable by action for damages if breached, but not specifically in equity where the benefit designed to flow therefrom is no longer a reality because of changed conditions . . . . The decisive consideration is the inequity of enforcing a restriction which can no longer do the land intended to be benefited thereby any good. [Id. at 564 (citations omitted).]

The test is thus not whether defendant Cleary's lot achieves a benefit by having a large, unsubdivided parcel behind her property but whether the original purpose behind the deed restriction is achieved by maintaining the deed restriction in place. From our review of this record, we are satisfied that it is clear that the purpose behind the Planning Board's insistence on a deed restriction was to prevent the creation of additional flag lots. That, however, is no longer necessary in light of the subsequent acquisition of Lot 27, which, if merged with the Flag Lot, would permit the flag configuration to be erased entirely.

We are also satisfied that defendant's contention that the Planning Board relied on the deed restriction when it approved Beacon Woods I cluster design in 1997 is not supported by the record. Defendant points to the resolution's references to aesthetics, adequate light, air and open space to support her position that the deed restriction was integral to the neighborhood lot layout. This, however, overlooks the fact that the 1997 resolution approving the cluster design merely kept in place the agreed-upon restriction from the earlier 1995 approval, which did not utilize a cluster design. Because the condition of a deed restriction predated cluster design, that condition could not have been an integral element of the cluster design.

We have considered whether our conclusions in this regard should lead to a direction that the trial court grant summary judgment to plaintiff. We have rejected this approach from an abundance of caution. We are unaware whether any intervening circumstances may have arisen which could affect the rights of the parties. Absent such having occurred, we would anticipate the trial court granting summary judgment to plaintiff in the ordinary course.

Reversed and remanded for further proceedings.

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